Tuesday, October 29, 2013

How a man spent $3000 a month and retired at 30


source: Yahoo Finance

His name is Pete. He lives in Longmont, Colorado. And, eight years ago, he and his wife retired at age 30.

He now blogs about finance and lifestyle at Mr. Money Mustache for 400,000 unique visitors a month. Because he’s anonymous, he says that his blog is now popular enough — garnering 37 million page views since its founding in April 2011 — that people mention it in conversation with him without knowing he’s the author.

A few gems of his financial philosophy: Having debt is like being in “a rickety train speeding along the rails towards a broken bridge over the Grand Canyon. Buying anything beyond groceries and rent in this condition is like sitting in that train ordering yourself a fourth cup of tea on credit.”

He calls bikes the money-printing fountain of youth. He calls nature free entertainment. He says happiness does not come from indulging in luxury products, but from challenging yourself and growing personally. In fact, right now, he is in the process of downsizing his already frugal life to live in a house that is 1,000 square ft. smaller than his current one.

I asked him how he accomplished his early-retirement goal — one key was saving more than half of his salary – and how others can retire early too.


Out of all the many things you did to be able to retire early, what was the key to getting there?

The main technique to amassing lots of money is: Buy less stuff. As a specific tactic, the biggest single trick was probably choosing to live within biking distance of work, and drive less in general. Unnecessary driving burns up way more of most people’s incomes than they realise.

It helps to think of recurring expenses not on an individual basis, but over a 10-year period, taking into account how much they would earn if invested instead of spent. So a couple who each have a 20-mile commute is not spending “a few bucks on gas,” but rather about $150,000 in car-related costs every ten years, compared to living close to work and biking or walking instead of driving. And that is before taking into account the value of the time wasted in the car. With that in mind, a commute like that really burns at least $300,000 per decade. Car commuting alone really can make the difference between “broke” and “millionaire” within a single working career.

Similarly, a $100 per week restaurant habit is $75,000 every ten years with compounding, bringing your lunch to work alone is at least $30,000, and even the lowly old Starbucks latte habit adds up to more than the price of a luxury car every decade. For a quick shortcut to this: Multiply any weekly expense by 752 to get the cost to you every decade. You can calculate this stuff yourself by entering the series of expenses into a future value calculator.


How and why did retiring early become your goal? And was age 30 the target, or was an amount of money the target?

As my wife and I began to think about starting a family in our mid-20s, we realised that our careers were going to conflict with our desire to be good parents. We decided it would be ideal if we could quit our jobs before we had the first child. This kicked off a savings frenzy. We were already in the habit of not buying new cars, biking to work occasionally, and cooking food at home. But once we realised the power of these measures, we started doing them more. And we stopped the “Oh, that would look really nice in the living room” type of impulse shopping.


Can you give me the budget you lived by while working toward early retirement?

There was no formal budget, but we spent about $36,000 per year. The mortgage payment was about $1,200 per month at the time — mostly interest with just a bit of principal. We earned typical tech worker salaries, starting at around $40,000 after graduation and rising to $70,000-$125,000 depending on bonuses and other windfalls. For savings, we just maximised the 401(k) accounts, made extra mortgage payments, and put the rest into taxable Vanguard index funds.

We probably spent about $50 per week on groceries combined, although this was over 10 years ago. That’s about $70/week or $3,500 per year for a couple today. Our ‘secrets’ to lower grocery costs are eating less meat, buying whole ingredients instead of packaged meals, and stocking up at Costco where appropriate.

Given that you and your wife were software engineers, would you say that you two were able to retire at 30 mostly because you were making higher-than-average salaries? How would someone making the median income ($50,502 in 2011) manage it?


The good jobs were definitely a boost. If you average our salaries over the nine working years, we earned about $62,000 per person per year. Plus I renovated our first house over five years and eventually turned it into a rental, later selling it for a reasonable profit.

People with lower incomes will see even greater benefits from frugal living, but it will just take a bit longer (or a lower level of spending) to reach financial independence.

At the time that you were working toward retiring early, did you feel that you were scrimping or that sticking to your budget was hard? If so, did you give in to temptation or overcome it? If the latter, how did you stay so disciplined?

We’ve always felt like we live with embarrassing decadence, and still do. This country is one of the fanciest, most luxurious places on Earth, so even living slightly below what everyone else is spending is still a pretty fine place to be. The key is to remind yourself of how good you have it, rather than imagining that you are missing out on something because your car only has four cylinders instead of eight.

What were the things you were still able to do or buy with this budget that might surprise readers?

In the early years, we still lived in a great house, had two cars and a fancy motorcycle, and traveled plenty. Now we have even nicer material stuff including a 2,600-square-foot house, and we spend three months of the year traveling. We eat luxurious organic food of all types and buy whatever we want. We just happen to want a bit less so the family’s annual spending ends up around $25,000 each year these days.

How did you manage the social awkwardness of not wanting to do things that your friends would do because you didn’t want to spend the money? Did they consider you cheap? If so, did it create any rifts?

We generally did the same things as our friends — hosting parties, camping and mountain bike rides, snowboarding, and working a lot. The difference was mainly in hidden wastes — I would keep my older car instead of upgrading to a new one bought on credit. Maybe light up the fireplace at home on Friday night and pour some wine rather than going downtown for expensive drinks. Cut my own lawn instead of hiring a service company. Things like that can easily chop your spending in half.

You talk about how your initial savings of $4,000 a month became $7,000 a month in a few years. How does that math work?

As a young person gets the hang of living an efficient lifestyle, things improve each year: your income goes up, but your spending drops as you become better attuned to less materialistic living. On top of that, your investments grow. So if you save $50,000 in the first year and earn 5% annual returns on that, the next year that chunk is adding $2,500 to your annual income, and so on.

How did you know when you had amassed enough to retire?

We originally had a goal of “$600,000 plus a paid-off house.” Using the “4% rule” for retirement withdrawal [a rule of thumb used to determine how much of your nest egg can be withdrawn each year so that your funds last through your retirement], this would generate about $24,000 in passive income, which covers our family’s living expenses. Plus I figured there would be hobby income over time. But I wanted to ensure that we could easily live off the investments without working, if desired.

How did the great recession five years ago affect your plan? By then, you had already been retired for three years. Were you worried that you would have to go back to work?


A recession doesn’t affect a retiree living on a portfolio of index funds nearly as much as the newspaper headlines would have you believe. In 2008, the dividend yield of the S&P500 dropped much less than the ticker price, which kept some of the cashflow intact. On top of that, most retirees have a portion of their savings in bonds which also provide steady income and serve as a counterweight to fluctuating stocks. In my case, I also had a couple of rental houses at the time, and the rent payments remained uninterrupted.
And recessions are short: If you keep your spending in check for that year or two of lower stock prices and reinvest any spare money, you will often come out wealthier than when you went in.
What are the biggest mistakes you see among American consumers today?
The insane belief that if you’re in debt, than you are still allowed to go out and buy more stuff as long as you keep making the monthly payments. People are good at working hard and earning money, but not so good at scaling their consumption levels to match that income. You can’t be driving around in a $20,000 vehicle when you aren’t even able to put $20,000 into investments every year!
It’s not like I did anything complicated or difficult to retire early. Minimise your spending regardless of your income, and then good things will happen. People in other countries write to me and say, “Do you realise how silly this is? In Germany, you’re just a normal guy. This is what normal people do: They don’t spend all their money.” But in America, the first guy not to spend all his money gets into all the newspapers.

The problem is that the default assumption in the U.S. is that money is for spending. People say things like, “It’s not any use if you don’t spend it! It’s not like you can take it when you die!”
But when you save your money, you’re not depriving yourself of anything. You’re actually buying yourself the most valuable thing you can: your freedom. So if you change your paradigm and say, “I like spending my money — on my freedom,” it gets you excited about saving again, especially because freedom is such a cherished American value.
Whenever I run into some extra money, the first thing that occurs to me is, “Hey, I can make some more investments with this!”
Is there anything else I didn’t ask you that you’d like to say?
The one thing that nobody has asked me is why the blog exists and how I think it might accomplish the mission.
It’s really a way of re-teaching some of the greatest past wisdom of human civilisation — stuff that has been lost in the consumer rush of the latest decades. Sure, it’s lots of fun to become wealthy and quit your job and be free to do whatever you like. But if we can re-learn these lessons about what happiness really means, we will all be a lot richer and healthier for it.
However, this mission involves changing the culture of the whole rich world. So we need a financial superhero to function as the leader of the movement, and an unstoppable cult-like and ever-growing body of devotees to share it. So far, so good.







Tuesday, September 3, 2013

Value Investing Part 1: What is Value Investing?

Welcome to Lesson 1 of Value Investing. If you're wondering why I am now adopting this approach, please read my post about A Change In Strategy.

Value Investing is an investing method categorized under fundamental analysis and was derived from the ideas of Benjamin Graham (Warren Buffett's mentor) and David Dodd. This method involves buying stocks of companies that appear underpriced.

Under this method, I will be teaching you the following:

1. Identifying companies with a durable competitive advantage.
2. How to read the financial statements and why you need to learn how to read them.
3. How to determine if the stock price is attractive or not.

Now, why do I want to adapt to this method of investing? Because I grew weary of not knowing whether the stock I am buying is already expensive or not relative to the company's actual value and not because of the sentiment of the market, whether it be bull or bear.

Take a look at the picture below.



At what level do you think is the PSE index at? Take a look at the photo below.


Now, try to guess at what stage we are...

That is the chart of the PSE Index as of August 2013. Scary, right?

It looks like we are now approaching the COMPLACENCY stage. Once our market crashes, what we saw in the last week of June will be nothing in comparison.

At this point in time, we need to be prepared with cash to buy stocks once they are at their lowest point, between the ANGER and DEPRESSION stages. So start getting rid of stocks that you are unsure of, while keeping stocks that you are completely comfortable holding to even if their prices go very low.

But how do we know if a company will recover or not? By looking at companies with a durable competitive advantage and healthy finances.

I will post Part 2 shortly.

In the meantime, may God bless your investments.

~Crimson

A Change in Strategy

The recent slide of the stock market since June, 2013 has probably had made you nervous about your portfolios, and I don't blame you. From a high of 7,403.65, it is now at 6,044.15 or a 22% decline, which is very large.

I know I have been an advocate of Bro. Bo Sanchez's Truly Rich Club, but after having seen my previous gains of 40% drop to 8%, I began to have doubts about TRC's Strategic Averaging Method (SAM), and so I changed my subscription from Gold membership (approximately P500/month) to Silver membership (P247/month). I no longer have access to the mp3 downloads, but I am still earning commissions.

I am not discrediting TRC, in fact, I had learned a lot while I was a member. I learned about making sure to lock-in profits by setting a Buy Below Price (BBP) and that I should sell the stock once it reaches the Target Price (TP) set by Bo. This teaches discipline on setting a price point and when not to chase prices. This also teaches that after a substantial gain, you should already sell the stock and pocket your gains.

I relied on Bo's list of companies to tell me which companies to buy. For some of the stocks on the list, the TP was reached, but for other stocks such as Metrobank (MBT), the TP kept on being changed to higher values. MBT was initially given a TP of 120, then increased to 149. So, the BBP was also changed and increased from 104 (for the 120 TP) to 129.56 (for the 149 TP). I had began buying MBT while it was at the 87 price level, then the TP was increased to 149. So I kept buying while the price was BBP of 129.56.

Suddenly, the market slump of June 23, 2013 arrived and wiped out all my earnings. If I had sold at 120, I would've locked in a gain of 37.9%!

Also, recently, Citiseconline Financial (COL) changed their Investment Guide format. It now includes the Fair Value (thats the TP for us), and the buy below value (thats BBP for us). So the difference now between COL's investment guide and TRC is the list of stocks, right?

But wait, COL also has model portfolio. You can access this by going to the Research Tab -> Fundamentals -> Investment Guide.

Once on the Investment guide, look at the upper right section and click Modify Set-up, then a small window pops up. On the lowest portion of the window, you will see two choices:

1. Use Model Portfolio
2. Use Default Set-up

Click the Use Model Portfolio checkbox then click the Display Investment Guide button. The Investment guide should now be showing lesser stocks. This is the model portfolio of COL which you can follow instead of TRC's portfolio.

I was about to strictly adhere to this model when out of the blue, COL removed BDO and MBT from their list. I thought, "What?!?!? I just bought those 2 stocks a day ago!" They cited that MBT and BDO's long-term prices will be affected due to the recent volatility of the market. The recent majority of MBT and BDO's earnings came from trading gains, i.e. the gains they got from trading the stock market.

And so, I got fed up. I couldn't stand the constant changing.

Now, I still support TRC and I advise that you become a Silver member too. Why? Because of the earning potential. If you click on the link at my blog and become a member, I get a commission without added cost to you. In the same way, if you set up a blog or tell people to join with you as their referrer, you get a commission too. The commission is P99 per month if the person referred joins with a Gold membership. I don't know how much the commission will be for the Silver level.

The topic of this post is A Change in Strategy, and this is like refreshing my entire portfolio. I will shift from SAM/Peso Cost Averaging (PCA) to Value Investing. I'll be teaching you all about value investing in a different post since this is already getting quite long. The link for the value investing lessons is found below.

For you, my friend, if you want to exit from investing in the stock market, my suggestion would be to invest instead in mutual funds or Unit Investment Trust Funds (UITF). A UITF is just like a mutual fund except they are products from banks.

I have come to realize the advantage of using mutual funds or UITFs than investing by yourself through an online broker. They are as follows:


  1. Investing through an online broker by yourself means having to monitor the stock prices daily. If the stock market goes down, we tend to panic after seeing all the red in our portfolio, and so we go into herd mentality mode and sell our stocks when it is declining. But when you invest in mutual funds or UITFs, we don't see the price action everyday and so, are immune from market fluctuations infecting our investing decisions.
  2. Mutual Fund and UITF managers are under pressure to perform well in the short-term to attract more customers. 

If you have been investing by yourself through an online broker, you'd know what I mean about seeing all red in our portfolio and how we panic after seeing it, unless you have nerves of steel. A downside to investing with mutual funds is that you don't receive the cash dividends declared by listed companies, but if you look at the dividends given out by listed companies, the amounts are so minuscule as to be negligible.

The bulk of money received from the stock market is still through capital gains (you buy at P10, and the price goes up to P15, your capital gain is P5), and with fund managers under pressure to perform well, your portfolio will certainly grow.

The new strategy I am adopting is called Value Investing. The link for it is just below.

Value Investing Part 1: What is Value Investing?

Until then, may God bless your investments.

~Crimson

Stock Update as of September 3, 2013

Whew! It has been awhile and I apologize for that. The whole month of August was quite busy for me. Anyways,  on to the update.

The PSE opened today at 6,072 and ended at 6,083 for a 22.11 point gain or  0.36%. Not much...



We are finally nearing the end of August Ghost month, or as others call it, Aughost month. MBT declared a 30% stock dividend and the ex-date was last August 29, 2013. Thats why there is the sudden drop of price by 30% also.

If you see your MBT portfolio red by 25%, relax. The additional shares haven't been credited just yet and the new shares will be credited to your account on September 16, 2013.

Now on to the table...

As you can see, all prices have gone down if you compare it to my August 29 stock update. The Ber months are now approaching (september, october, nov, dec.) so we ought to be seeing these stocks go up, BUT DON'T BUY TOO MUCH.

You may be wondering why the BBP levels have gone down. I increased the gain rate from 15% to 25% so that we will not be chasing prices to higher levels.

I'd advise you to buy minimally or by board lots only. Why? We need to wait on America's decision on whether they'll go to war with Syria or not...and yes, our stock market will be affected if they do go to war with Syria.

So be cautious for now because to be honest with you, this is the WORST ghost month I have experienced.

Remember to set your cut loss prices. Mine is -20% for stocks I am confident in, and -8% for stocks that I am not so confident in, unless you have nerves of steel. If you do have nerves of steel, then continue on with the Peso Cost Averaging method of investing. Why? Because 10-15 years down the line, these dips will not matter.

As for me, I'm going to be adopting a change in strategy and you can read all about it here: A Change in Strategy.

Caveat Emptor! And May God bless your investments.

~Crimson


Wednesday, August 7, 2013

Food for Thought 2


A young man from Minnesota moves to Florida and goes to a big "everything under one roof" department store looking for a job.

The Manager says, "Do you have any sales experience?" The kid says "Yeah. I was a salesman back in Minnesota ."

Well, the boss liked the kid and gave him the job. "You start tomorrow. I'll come down after we close and see how you did."

His first day on the job was rough, but he got through it. After the store was locked up, the boss came down. "How many customers bought something from you today?"

The kid says "One".

The boss says "Just One? Our sales people average 20 to 30 customers a day. How much was the sale for?"

The kid says "$101, 237.65".

The boss says "$101,237.65? What the heck did you sell?"

The kid says, "First, I sold him a small fish hook. Then I sold him a medium fishhook. Then I sold him a larger fishhook. Then I sold him a new fishing rod. Then I asked him where he was going fishing and he said down the coast, so I told him he was going to need a boat, so we went down to the boat department and I sold him a twin engine Chris Craft. Then he said he didn't think his Honda Civic would pull it, so I took him down to the automotive department and sold him that 4x4 Expedition."

The boss said, "A guy came in here to buy a fish hook and you sold him a BOAT and a TRUCK?"

The kid said "No, the guy came in here to buy Tampons for his wife, and I said, 'Dude, your weekend's shot, you should go fishing.' "

Friday, July 26, 2013

Food for Thought


Once upon a time in a village, a man appeared and announced to the villagers that he would buy monkeys for $10 each. The villagers, seeing that there were many monkeys around, went out to the forest and started catching them.

The man bought thousands at $10 and as supply started to diminish, the villagers stopped their effort. He further announced that he would now buy at $20. This renewed the efforts of the villagers and they started catching monkeys again.

Soon the supply diminished even further and people started going back to their farms. The offer increased to $25 each and the supply of monkeys became so little that it was an effort to even see a monkey, let alone catch it!

The man now announced that he would buy monkeys at $50! However, since he had to go to the city on some business, his assistant would now buy on behalf of him.

In the absence of the man, the assistant told the villagers; "Look at all these monkeys in the big cage that the man has collected. I will sell them to you at $35 and when the man returns from the city, you can sell them to him for $50 each."

The villagers rounded up with all their savings and bought all the monkeys.

They never saw the man nor his assistant, only monkeys everywhere!

Now you have a better understanding of how the stock market works.

Stock Update as of July 26, 2013

Hi Guys...been awhile, and I apologize for that. Been busy studying technical analysis to add to my arsenal.

Anyways, on to the guide. We can see now that the PSE's resistance points are at 6,800 level, and if that breaks, at 7,000-7100 levels. Keep this in mind when buying your stocks. Also, Ghost month (August 15 - September 15) is approaching. This usually means that stock prices will go down, so set aside some cash for buying opportunities.

The day started at the 6,815 levels, but the bulls failed to push past resistance, and so the bears took over and drove down PSE levels to 6,732 levels. As for our stock picks:


I've highlighted priority buys with yellow. BDO, MBT, and BPI are currently under review by Moody's on whether they will receive a credit rating or not. So far, Moodys has only given the PSE positive feedback which is good news.

You might have noticed MER's volatile price action due to SMC selling a lot of its shares. If you were able to buy during the dips, then congratulations. 

As I mentioned before, the Ghost month is approaching, so we will be experiencing little price movement towards our target prices. Remember to control your emotions and instill discipline. 

My Technical analysis is still a bit rough, but here a few charts to consider:

BDO seems to be in a short-term downtrend, but DMI doesn't confirm this. The candle touched the lower part of the bollinger band which is usually the support line. I added a few shares at this level.

LRI broke through support today, and the downtrend is confirmed by DMI (but DMI has been that way for awhile now). Anyways, Stochastics is headed towards the oversold levels. Watch out for a doji before buying.

MEG trend lines are showing an uptrend but isn't confirmed yet by DMI, but stochastics is in the overbought level. If this trend continues, we will see MEG at 3.65. Watch for a break in resistance levels before buying.

I encourage you to start studying technical analysis. Your investing plan should consist a mix of Fundamental analysis and Technical analysis. Fundamental analysis is for picking which stocks to buy. Technical analysis is for when to buy and when to sell.

Remember to always protect your capital.

Also, take my technical analysis with a grain of salt since I'm still quite new at it.

And as always, Caveat Emptor!

God bless,
Crimson